The Introduction Of Mamee Double Decker

The Introduction Of Mamee Double DeckerMamee-Double Decker (M) Berhad is a unique brand of uncorrupted admiration and fine quality. The company is recently listed in the Kuala Lumpur Stock Exchang (KLSE). The company manufactures many a(prenominal) overlaps which ar Mamee Monster, Mamee Instant and Sllrrrp Noodles, Mister tater Chips, Mister Potato Crisps and so on. All this convergences argon al groom ho customhold names.The near famous convergence of the company is Mamee Monster. Mamee Monster is something give care noodles with a annulus of seasoning powder. This product consists of dickens livelinesss which are chicken and barbeque. Besides these two flavours, on that address is an otherwise(a) sensitive flavor like satay flavor. Between these tether flavours, barbeque is the tastiest and many kids like it including us. Mamee Monster consists of jumbo encampment the jumbo hoops are a smart product and it is include two flavours like barbeque and the new ane - curry flavour. These two flavours clear stimulate our taste buds.Besides this honored, the company in like manner promote a new product which is Mister Potato Rice Crisps. This new product depose make dos with others brand as perfectly like Jacker and Pringles. Why do I say so? It is because this Mister Potato Rice Crisps is low fat and healthier analyzed with others potato chips. Jacker is redeeming(prenominal) taste but flavoury and same goes to Pringles. This new product consists of iv flavours much(prenominal) as, original, flame grilled bbq, hot and spicy as well as sour cream and onion. For state who likes chili crowd by punish hot and spicy flavor. For those who do not like heavy flavour can effort original flavour.In an addition, Mamee-Double Decker (M) Berhad also has a product which is instant noodles-Mamee Sllrrrp. For this instant noodles devote a variety of flavours such as ayam kampung, asam laksa, kari berapi and kari extra pedas. Any of the flavou rs exit make people sllrrrp, sllrrp, sllrrrp when eating.Overall, Mamee-Double Decker (M) Berhad is a good quality brand and no doubt it can win the warmheartedness of the public range from kids and adults to old folks. This company is a very no-hit company and earns much profit from preliminary until now.Mamee LekorAfter a thorough consideration, we as Mamee-Double Decker (M) Berhads corpo crop finance advisors had heady to cast up their shareholders wealthiness by introducing a new product keropok lekor. What is keropok lekor? This is it.The easiest authority to describe Keropok Lekor is to call it as slant sausage. Its briny ingredients are fish (Ikan Parang/Kembong/Selayang), sago flour, salt and water. We named our new product (keropok lekor) as Mamee Lekor. It can be served in crispy type or soft chewy type according to preferences.DNew folderMmuGamma world-class SemBBF 2124 FM 2keropok_lekor.jpgDNew folderMmuGamma 1st SemBBF 2124 FM 211.jpgKeropok lekor is originat ed from Kuala Terengganu, Malaysia and it is a popular and most visible(a) deep- fry snack in Terengganu. Lots of local anesthetic on that point bop how to make this keropok lekor. on that pointfore, there are many stalls in Malaysia that sells keropok lekor. However, there is n cardinal in hypermart, cinemas and petrol station. This keropok lekor become very popular that we can ascertain it in other states of Malaysia such as Johor and Melaka. Perhaps, we could not find this type of snacks in country other than Malaysia because keropok lekor is a local Malay delicacy and specialty of Malaysia.Mamee-Double Decker (M) Berhad acquaints Mamee Lekor in two forms. First, the mini ball surface fried keropok lekor which publicity in a small plastic p distributively like Mamee Monster. Another one is peeled(prenominal) keropok lekor. DNew folderMmuGamma 1st SemBBF 2124 FM 2keropak_lekor.jpgThe fried keropok lekor in mini packing contains 10 mini balls of keropok lekor which sells RM1.50 per pack. The preceding(prenominal) picture is for illustration purpose only. To be to a greater extent attrative, we leave take shape it into mini balls to attract customers. We also evoke young keropok lekor in 700g per pack which sells at RM10. This fried mini keropok lekor get out expire in 4 to 5 days after take. How we are way out to cross this situation? We get out follow the Gardenias distribution strategy. We testament diffuse our workers to send new keropok lekor and collect back the expired one. Our workers are going to the retail store and supermarkets to send and collect Mamee Lekor 2 measure per hebdomad. This is to break that our products are fresh before reaches to our customers and consumers.Also, we get down raw keropok lekor to fulfill some households selects. They can cut it into the thickness they prefer and tyke or steam it. The main difference between the raw and ready fried mini jam-packed keropok lekor is that the raw keropok lekor c an keep for longer distributor point. On the other hand, the ready fried mini packed keropok lekor can only last indoors 5 days. Some household may buy the raw keropok lekor and kept in their freezer and fried it whenever they involve to eat. Since raw keropok lekor can be kept in a long period which is around one tendency of instruction, we design to merchandise it to other countries. We device to tradeing 700g of raw keropok lekor per pack to other countries selling at RM12 each. The selling equipment casualty is slightly high than in Malaysia because it already included the court that related to export activities. We intractable to export to Australia, Hong Kong and capital of Singapore. We export to a greater extent(prenominal) to Australia because it is the largest and fastest graveling export market compared to other countries. It has highest export rate of snack and confectionary from Mamee-Double Decker. We also export to Singapore and Hong Kong because w e want to introduce Mamee Lekor to Western and Asiatic countries as well.Why we beget keropok lekor? This is because it is a local traditional delicacy which not available in other countries. It is a specialty to foreigners because their countries do not have this food. So, we can monopolize Mamee Lekor in other countries. Besides, according to research, Mamee manager (M) Berhad s snacks and candy store occupied the highest demand compared to other catrgories. So we publish Mamee Lekor which is a descriptor of snacks to boost the demand.We will start our project by reaching out the children because no children dislike snacks and they like to try on new things. So, we decided to turn over Mamee Lekor to school canteens. It is packed in a mini pile same as Mamee Monster. It is cute and can attract children to try it. It is also convenient to consume. Moreover, in order to expand new market, we will distribute our Mamee Lekor to all cinemas such as Golden Screen Cinemas and MBO C inemas. Most of the people will carry a packet of snacks or a loose(p) box of popcorn into the theatre. As our Mamee Lekor is also a kind of snacks, we study that the demand will be higher(prenominal)(prenominal)(prenominal) in cinemas. Also, Mamee Lekor can be a substitute good for those who do not like popcorn or other snacks for health conscious.As Our Mamee Lekor is made from fish and fried with unsaturated oil, it is high protein, monosodium glutamate (MSG)-free and less oily. Why we want to promote fit animatenessstyle? It is to follow Mamee-Double Decker (M) Berhads step. The company wants to produce products that are MSG-free, artificial colouring-free and oil-free. We produce keropok lekor in a healthy way to function consumers to consume without worries patch maintaining a balance and healthy lifestyle.Initial InvestmentWhen we wanted to produce the Keropok Lekor, we used 3 types of appliance like cartridge corpse, frying auto and promotion weapon. The molds a nd the usages are shown at a lower place pickup system is used to liquify the filled up fish with some ingredients. This utensil is the key in making Keropok Lekor and was the first step to produce the better product. The retail cost of this type of apparatus is RM 15,000 each. It is a franchised system, so the legal injury is fixed. We prepare keropok lekor from fish meat grounded with sago and salt these are then rolled and made into the shape of long tubes similar to sausages by this machine.CUsersPublicPicturesSample Picturesmoto_0117.jpgThe frying machine is used to fry Keropok Lekor after it was shaped into mini size by our labours. This machine has many functions such as continuous fines removal for change magnituded oil life and automatic oil level ascendency. It is easy to clean. Its superior oil temperature control helps to maintain fryer quality stability. The cost of purchasing the machine is RM 6,000 each.http//img.diytrade.com/cdimg/432764/3809036/0/1181816403/ Gas_ sauteing_Machine.jpghttp//i03.i.aliimg.com/photo/104903103/Horizontal_Packaging_Machine_v0.jpgAs shown the horizontal packaging machine. After the Keropok Lekor had been steam and fried, the packaging and leballing process happen. It is to keep keropok lekor last longer and maintain the taste. This machine cost RM 13,000 each.How many factories we have? We are going share some spaces in the liveing Mamee-Double Decker factories earlier than building extra factories. We pick out to share content with factories in Selangor, Perak, Johor and Sarawak. This is the strategic location as we can cater the demands of North, East, West, and federation of Malaysia.There are 2 cartridge system, 2 frying machines and 1 packaging machine in each factory. We use 2 catridge machine because one machine is not big decent to blend big amount of filled fish and other ingredient. When we use two of them together, the criminal maintenance cost will become lower when some of the parts broken. time on processing will also reduce 20% compare to big cartridge machine. Other than that, we use 2 frying machines because we ask to save cost especially in introducing the new product. The bigger and more technological systemally advance machine will cost higher. So we use 2 cartridge system and frying machine instead of the civilise one. The machines we use are expected to be able to serve large amount of labor. Lastly, for an newly introduced project, we expect that 1 packaging machine is enough to cater our production. It produces around 70 to 100 packs of keropok lekor per hour. With one packaging machine only, we can save our budget and consume less space.We are going to promote our new product by advertising on The realizeer1 newspaper. Why we choose to advertise on The Star rather than other newspapers? agree to Audit Bureau of Circulations from 1 July 2008 to 30 June 2009, The Star newspaper is the most famous newspaper in Malaysia in term of readership. It has bet ween 290,000 to ccc,000 readers. Moreover, The Star newspaper is an English-language newspaper which is readable for all races, for instance Malays, Chinese, Indian and others, in Malaysia.Additionally, we command to buy new vans to implement our distribution communicate strategy. severally second hand van would cost us RM 80,000 each. We plan to buy 2 vans for each factory. We will admit device driver to stock our distribution wampumwork to distribute and collect back our keropok lekor. socio-economic class 1In first family, we expect to sell 1,200 packs of mini ball keropok lekor and raw keropok lekor each day. That means each factory has to produce 300 packs of miniskirt keropok lekor and raw keropok lekor respectively. bring quantity produce of mini and raw keropok lekor = 300 packs per day x 4 factories x 30 days per month x 12 months per course of study = 432,000 packs repectively.gross r regularueMini keropok lekor stark naked keropok lekor exchange in menstruum in course of instruction 1Unit selling priceRM 1.50RM 10.00Quantity produce432,000432,000 gross gross gross sales wadRM 648,000RM 4,320,000RM 4,968,000The main ingredients of keropok lekor are ikan parang/kembong/selayang, sago flour, salt and water. The ingredient costs of mini and raw keropok lekor are RM 0.80 and RM 5.00 each part the packaging costs are RM 0.20 and RM 0.10 respectively. Packaging cost of mini keropok lekor is higher than raw keropok lekor because the packaging design will be more showy and attractive. Also, we request labours to help us shape mini keropok lekor and fry it. for each one labour cost is RM 800 per month. Each driver will have to live 2 times per week to distribute and collect mini keropok lekor. Each trip will cost RM 150 including petrol cost. So, each driver costs us RM 150 x 2 times per week x 4 times per month x 12 months x 4 factories = RM 57,600. courtsMini keropok lekorRaw keropok lekor section + packaging(RM0.80+RM0.20) x 432,000= RM 432,000(RM5+RM0.10) x 432,000= RM 2,203,200Labor6 labours X RM 800 X 12 months x 4 factories = RM 230,400Driver2 drivers x RM 57,600 = RM 115,200 silver escape cock(RM 432,000 + RM 2,203,200 + RM 230,400 + RM 115,200=RM 2,980,800 salary operating(a) exchange flow in social class 1 = RM 4,968,000 RM 2,980,800= RM 1,987,200Year 2Year 2, we estimate that our production will increase 5% as demand increases. Since first long time production is 864,000 units (432,000 units for mini and raw keropok lekor respectively), stratum 2 our productions will be 907,200 units (864,000 + 5%). That means production for each type is 453,600 units.Besides, as Mamee handler (M) Berhad generated about 30% of its gross revenue from the export markets which cover more than 80 countries across all continents, we plan to expand market and export raw keropok lekor to other countries. Each pack of raw keropok lekor, we will charge RM 12 which slightly higher than RM 10 to cover any expenses incur in ex port activities. In this year, we will export 100,000 units to Australia, 60,000 units to Hong Kong and 36,000 units to Singapore. In other words, we will export 25000, 15000 and 9000 units to these 3 countries in every 3 months.Why do we export more products to Australia? As Australia is the largest and fastest growing export market which contributed 18% of the total export sales in financial year 2009, we decided to export more products to the country. Other than Western country, we also export to Asian country such as Hong Kong. It not only helps to expand our market, but also introduce keropok lekor such a traditional cuisine to both Western and Asian countries. Besides, Singapore is our neighbour country and knows our cultures more as well as it contributed 9% of total export, so we choose to export to Singapore rather than other countries.SalesMini keropok lekorRaw keropok lekorExport raw keropok lekor bills inflow in year 2Unit selling priceRM 1.50RM 10.00RM 12.00Quantity pro duce453,600453,600196,000Sales volumeRM 680,400RM 4,536,000RM 2,352,000RM 7,568,400Due to increase in production, we have to add in additional 2 labours, 1 driver, 1 cartridge system, 1 packaging machine and 1 frying machine in each factory.CostsMini keropok lekorRaw keropok lekorExport (raw keropok lekor share + packaging(RM0.80+RM0.20) x 453,600= RM 453,600(RM5+RM0.10) x 453,600= RM 2,313,360(RM7+RM0.10)x196,000= RM 1,391,600Labor8 labours X RM 800 X 12 months x 4 factories = RM 307,200Driver3 drivers x RM 57,600 = RM 172,800Cartridge systemRM 15,000 x 1 unit x 4 factories = RM 60,000 packing material machineRM 13,000 x 1 unit x 4 factories = RM 52,000Frying machineRM 6,000 x 1 unit x 4 factories = RM 24,000 coin outflowRM 453,600+ RM 2,313,360+ RM 1,391,600+ RM 307,200+ RM 172,800+ RM 60,000+ RM 52,000+ RM 24,000 =RM 4,774,560Net operating cash in in flow in year 2 = RM 7,568,400 RM 4,774,560= RM 2,793,840Year 3We estimate that our sales in this year keep increasing and probab ly reach maturity. Our expected production excluding export will increases from 907,200 to 950,400 units which increases around 5 % of year 2s production. In other words, production for mini and raw keropok lekor is 475,200 units respectively.Additionally, we expect export rate of keropok lekor will increase 4 %, which is from 196,000 to 204,000 units. In this year, we have to add in more technologically advance machine to cater the increase in production. We will bribe more innovative cartridge system, packing machine and frying machine to improve productivity. We also hire 2 more labours and 1 more driver to help us run our business smoother. The additional driver can help us widen our distribution network to other places. We expect that the cost of labour will become slightly higher which is from RM 800 to RM900. It is to increase their motivation to work and maybe due to inflation.SalesMini keropok lekorRaw keropok lekorExport raw keropok lekorCash inflow in year 3Unit selling priceRM 1.50RM 10.00RM 12.00Quantity produce475,200475,200204,000Sales volumeRM 712,800RM 4,752,000RM 2,448,000RM 7,912,800CostsMini keropok lekorRaw keropok lekorExport (raw keropok lekorIngredient + packaging(RM0.80+RM0.20) x 475,200= RM 475,200(RM5+RM0.10) x 475,200= RM 2,423,520(RM7+RM0.10)x204,000= RM 1,448,400Labor10 labours X RM 900 X 12 months x 4 factories = RM 432,000Driver4 drivers x RM 57,600 = RM 230,400Cartridge systemRM 20,000 x 1 unit x 4 factories = RM 80,000Packing machineRM 20,000 x 1 unit x 4 factories = RM 80,000Frying machineRM 10,000 x 1 unit x 4 factories = RM 40,000Cash outflowRM 475,200+ RM 2,423,520+ RM 1,448,400+ RM 432,000+ RM 230,400+ RM 80,000+ RM 80,000+ RM 40,000 =RM 5,209,520Net operating cash flow in year 3 = RM 7,912,800 RM 5,209,520= RM 2,703,280This year, although expected sales increases, net operating cash flow decreases. This is because we plan to do expansion by adding more technologically advance machines. This is logic as whenever a firm manages to cover up their initial investiture, what they susceptibility do is to do expansion.Year 4Out of expectation, probably the demand for our keropok lekor might go down. Perhaps there is new competitors exist in market. Who knows they envy of our high sales volume and might want to compete with us? With our 3 years brand recognition, perhaps our sales would not upchuck too badly. So, our expected production will be 920,000 units which are 3% less than previous year. Production of mini and raw keropok lekor will be 460,000 units respectively. As production decreases, we do not have to hire much driver for distribution network. We will cut down 1 driver to cut expense of RM 57,600. However, we will remain our existing labours. As we believe that, whenever there is an obstacle, we will find out a way to curb it and boost future sales as well as production. Thus, we do not want to loss any well- trained and patriotic labour. Still, in order to handle any possible changes in f uture, we have a pessimistic view that the cost of ingredient will increase. We indicate that the unit cost of mini keropok lekor will increase from RM0.80 to RM0.90 tour raw keropok lekor will increase from RM5 to RM 5.50.On the other hand, our export rate will keep on increasing. We expect our production will be 210,000 units which is 3% higher than in year 3. Why do we forecast that the export rate will increase? Why not decrease? Because, even if foreign competitor wants to compete with us, they might lead some times to figure out how to produce such a Malay local cuisine which is available in Malaysia only. This is our local special food, so of course there is some recipe that other countries do not know. Also, since there is a decrease in Malaysias sales and an increase of export rate, we do not have to add in any new machine.SalesMini keropok lekorRaw keropok lekorExport raw keropok lekorCash inflow in year 4Unit selling priceRM 1.50RM 10.00RM 12.00Quantity produce460,0004 60,000210,000Sales volumeRM 690,000RM 4,600,000RM 2,520,000RM 7,810,000CostsMini keropok lekorRaw keropok lekorExport (raw keropok lekorIngredient + packaging(RM0.90+RM0.20) x 460,000= RM 506,000(RM5.50+RM0.10) x 460,000= RM 2,576,000(RM7.50+RM0.10)x210,000= RM 1,596,000Labor10 labours X RM 900 X 12 months x 4 factories = RM 432,000Driver3 drivers x RM 57,600 = RM 172,800Cash outflowRM 506,000 + RM 2,576,000 + RM 1,596,000 + RM 432,000 + RM 172,800 = RM 5,282,800Net operating cash flow in year 4 = RM 7,810,000 RM 5,282,800= RM 2,527,200Year 5Assume that there is a sink in sales, of course we will take some actions to increase the sales back. In this year, we plan to open kiosk in hypermarket. Together there will be one kiosk in Melaka, Kuala Lumpur, Penang and Johor Bahru respectively. Rental of each kiosk is expected to be RM 800. We will hire 2 workers to help us operate the kiosk. Since we sell freshly cooked keropok lekor on the spot, we will need to purchase one frying machin e for each kiosk. We also need some budgets for setup cost.With the above strategy, we believe that we able to boost our sales for at least 2%. Our expected production will be 940,000 units which is 470,000 units for each type of keropok lekor. Furthermore, we predict that our export rate of keropok lekor will grow at a decreasing rate which is 1% only. Our expected export rate will be 212,000 units. We are going to hire 2 more labours to help us to run our business to avoid add on shortage and to employ any future strategy. We need 1 more driver to widen our distribution network, and send raw keropok lekor to our kiosk to ensure there is no shortage problem. No additional machine is inevitable as we already added in technologically advance machines in previous year which able to cater higher production.SalesMini keropok lekorRaw keropok lekorExport raw keropok lekorCash inflow in year 5Unit selling priceRM 1.50RM 10.00RM 12.00Quantity produce470,000470,000212,000Sales volumeRM 70 5,000RM 4,700,000RM 2,544,000RM 7,949,000CostsMini keropok lekorRaw keropok lekorExport (raw keropok lekorIngredient + packaging(RM0.90+RM0.20) x 470,000= RM 517,000(RM5.50+RM0.10) x 470,000= RM 2,632,000(RM7.50+RM0.10)x212,000= RM 1,611,200Labor12 labours X RM 900 X 12 months x 4 factories = RM 518,400Driver4 drivers x RM 57,600 = RM 230,4004 Kiosk ExpensesCalculationsTotalRentalRM 800 x 4 kiosks x 12monthsRM 38,400WorkersRM 800 x 2workers x 4 kiosks x 12 monthsRM 76,800Frying machineRM 3000 x 4 kiosksRM 12,000 apparatusRM 1,500 x 4 kioksRM 6,000Total expenses for kiosksRM 133,200Cash outflow in year 5RM 517,000 + RM 2,632,000 + RM 1,611,200 + RM 518,400 + RM 230,400 + RM 133,200 = RM 5,642,200Net Operating cash flow in year 5 = RM 7,949,000 RM 5,642,200= RM 2,306,800Although expected sales increases, net operating cash flow slightly decreases, it is due to the investment in kiosks. Yet, we believe that next years sales and net operating cash flow will increase simultaneously.RM 1 ,987,200 RM 2,793,840 RM 2,703,280 RM 2,527,200 RM 2,306,800o 1 2 3 4 5 yearRM 1,140,000The time line above depicts the conventional cash flow of our project. There is only one cash outflow for initial investment in year 0. From year 2 to 5, there is positive net operating cash flow. The net cash flow rotates from year 1 to 2 because we export raw keropok lekor to other countries and increase revenues. In year 3, the sales keep on increasing but net cash flows drop as we do expansion by purchasing additional machines for engineering science advancement. During year 4, we predict that there will be new competitors exist to compete with us. Our sales drop slightly but net cash flow increases, because we try to cut cost and do not need to add in new capital. The next year, we employ a new strategy which is to open kiosk in hypermarket to sell freshly fried keropok lekor. We predict that our sales will increase slightly. But wherefore net cash flow descend? Because we need some costs on operating the kioks. In short, our net cash flow thoroughout the year is up and down, but we manage to keep it at positive level. From other point of view, there will be up and down, because when any unfavourable things incur, we try to solve it and up the net cash flow again.Cost of bullyThe cost of capital acts as a link between Mamee Double-Decker (M) Berhad s long term investment decisions (keropok lekor project) and the wealth of their owners as pertinacious by investors in the marketplace. It is the magic number that is used to decide whether a proposed investment will increase or decrease the firms stock price. The cost of capital is the rate of return that Mamee Double-Decker (M) Berhad must earn on the keropok lekor project in which it invests to maintain the market harbor of its stock.In this project, we will use Mamee Double-Decker (M) Berhads bear earnings to cover our new project. Cost of retained earnings is a cost of internally generated funds. It is an impute d or chance cost or the dividends given up by the common stockholders. It is the rate that investors can earn elsewhere on investments of comparable risk.Why we choose to use cost of retained earnings rather than issuing new shares or bonds? The main reason is that we notice Mamee Double-Decker (M) Berhad is proposing share buy-back. According to research, they plan to buy back the shares by victimisation their retained earnings. So, why do we still want to use its retained earnings to support our new project? This is because we cannot issue additional shares or bonds to raise capital. Mamee Double-Decker (M) Berhad proposed share buy-back is to reduce number of shares outstanding and increase their share price. So, we do not want to do the opposite way. Moreover, Mamee Double-Decker (M) Berhad is very strong. It holds RM 43,457,000 cash, fix and bank balances without borrowing any long term debt. It finances itself with cash only. That is why we do not want to raise capital by i ssuing bond which is a type of long term debt. Although levy is deductible when we issue bonds/debts/loans, we do not want to break the rules and rise their financial risk. They do not finance themselves with any debt, perhaps they want to reduce their risk for no need to pay out coupon payment and principal to their debtors.Besides, we choose to raise capital by using retained earnings because our initial investment only takes 9% of their boilersuit retaining earnings. Their retained earnings in financial year 2009 are RM 83,977,000 plot of ground our initial investment is RM 1,140,000. Our payback period shows that we could cover it up at heart 1 year. Yet, without being over optimistic, there is always something unfavourable happen, so we predict that we could cover up the initial investment within 2 years.Cost of retained earnings= D1 / P0 + gThe dividend per share from year 2000 to 2009 is shown belowYearDividend per shareYearDividend per share20005.5 cents200514 cents20015 .5 cents200620 cents20025.5 cents200725 cents20036.0 cents20085 cents200410 cents20097 centsInputFunction-5.5PV7.0FV9NGrowth of dividends= 2.71% (by using financial calculator)According to Bloomberg Businessweek2, expected dividend in 2010 is RM 0.10 while share price of Mamee Double-Decker (M) Berhad is RM 3.70.Cost of retained earnings = (RM 0.10 / RM 3.70) + 2.71%= 5.41 %In short, our cost of raising capital by using Mamee Double-Decker (M) Berhads retained earnings is 5.41%. The cost of capital will be applied when shrewd NPV of the company.Payback PeriodPayback period can be delineate as the amount of time required for a firm to notice its initial investment in a project, as calculated from cash flow. Payback period which also calculated asPayback period = RM 1,140,000 / RM 1,987,000= 0.57 yearsBasically, payback period is used by small firms to try most projects or small projects in larger firms. The computation is undecomposable and easy to apply. By measuring how quickly the firms get to date back from its initial investment, payback period gives implicit consideration to the timing of cash flows. numerous firms use payback period as a decision standard to other decision as it can be viewed as a measure of risk exposure. The longer the firm must wait to recover its invested fund, the greater the possibility of a calamity. So, the shorter the payback period, the lower the firms exposure to such risk.Payback period cannot be specified in light of wealth maximization goal because it is not based on discounting cash flows to delimitate whether they add to the firms value. Payback period is viewed as an unsophisticated capital budgeting proficiency because it does not explicitly consider the time value of money.The calculation above shows that payback period for our new project is one year. Why is it so short? It is because our cash inflow in year 1 which is RM 1,987,200 is higher than the initial investment which is RM1,140,000. So, we get to cover back our initial investment and have an extra of RM 847,200 of revenue in year one. We should be cheering that we able to pay back the initial investment within one year but please do not forget that it does rebuff the time value of money.In finance, we always mention time value of money. But, do we really know what does it mean? Well,